TheCorporateCounsel.net

As Dave observed last week, there has traditionally been a rhythm to capital markets deals that reflects the “human element” – bankers and investors enjoying time off in August. This pattern has not completely faded into oblivion, which means that August remains a good time to take a breather and assess where you stand on your compliance policies and other “corporate housekeeping” issues. This year in particular, many companies are taking the opportunity to review their insider trading policies. It’s a good time to add elements from the SEC’s 2022 rules that haven’t already been addressed, consider the impact of recent litigation, and refine provisions that were added or changed last year, to reflect any “lessons learned” in how those provisions have actually worked in practice.

For calendar-year companies, insider trading policies will first need to be attached as “Exhibit 19” to the Form 10-K next spring. But with the way the compliance date fell, companies with fiscal years ending in the spring or summer are already having to comply with the exhibit requirement and related disclosures. This Orrick memo looks at trends from early filers – with a specific focus on the software & life sciences industries. Here are some key takeaways:

– When “broadly disseminated” information is deemed public – Companies are largely aligned when considering broadly disseminated information to be “public” within one to two full trading days after release. So far, the data indicates that software companies tend to require one full trading day after release while life sciences companies are fairly evenly split between one or two full trading days.

– When the quarterly blackout period begins & ends – Across sectors, most companies’ quarterly blackout periods commence between two to three weeks prior to quarter end, and end one to two full trading days after earnings release. To a lesser extent, some trading windows commence with longer or shorter than the two-to-three-week window before quarter end, roughly in line with our collective experience. With the new compliance deadlines approaching, companies should reconsider their quarterly blackout period start and end dates, taking into account the trends and other factors such as how widely stock price-moving information is made available within the company.

– Treatment of gifts – While there is some modest variation, so far the data shows that insider trading policies expressly deal with gifts, and a majority of companies across sectors both prohibit gifts when in possession of MNPI and subject gifts to pre-clearance requirements, like other trades. Companies should re-evaluate their policies if they do not address the treatment of gifts.

The memo also notes that some companies are missing the Item 408 disclosure and/or iXBRL tagging requirements – so make sure you don’t let this happen to you or your clients. It also observes there is some variation at this point in whether companies are filing documents beyond the insider trading policy itself, despite the fairly broad language in the rule.

– Liz Dunshee